McDonald’s model in dying days: 30% of franchisees insolvent

For the first time in 40 years, the ranks of McDonald’s franchisees are dwindling.

Many franchisees, backed by analysts, fear the franchise system is nearing a major crisis, some going so far as to suggest the business model is doomed.

Only in April McDonald’s announced that it would be closing 700 “underperforming” locations but that because of the company’s sheer size the action would not constitute a diminishment to its size, especially in light of the fact that it is continually opening new locations worldwide. It also pointed out that it still is double the size of Burger King.

However, for its franchisees the picture looks much worse than simply 700 stores closing down.

In a financial survey by the Nomura Group, a franchisee stated that the company is in the “throes of a deep depression, and nothing is changing” and that “probably 30 per cent of operators are insolvent”.

One franchisee went as far as to speculate that McDonald’s is literally “facing its final days”.

What also came to the fore is that franchisees are in disagreement with the direction of CEO Steve Easterbrook, who has instituted full-day breakfast and digital ordering booths in an attempt to extend the restaurant’s tentacles. These measures are felt to be annihilating the company’s traditional brand.

“The CEO is sowing the seeds of our demise. We are a quick-serve fast-food restaurant, not a fast casual like Five Guys or Chipotle,” said one franchisee.

“The system is very lost at the moment,” said another franchisee. “Our menu boards are still bloated, and we are still trying to be too many things to too many people. Things are broken from the franchisee perspective.”

Franchisees have also been complaining about the erratic nature of McDonald’s corporate decision-making process and view Oak Brook’s leadership as inconsistent and characterised by a jumping from one failed marketing scheme to another. This pertains to measures taken by McDonald’s of late to entice back younger customers who are health-conscious and showing increased interest in outlets like Five Guys and Chipotle.

Tomorrow the company will report its next earnings report, which will put many questions into perspective.